Arizona’s Small Businesses Risk Losing Vital Tax Deduction

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News Summary

The National Federation of Independent Business warns that Arizona’s small businesses could face a significant financial threat if the 20% Small Business Tax Deduction is not made permanent. With over 678,000 small businesses in the state, the expiration of this deduction could lead to tax rates as high as 42.1%, putting jobs and economic growth at risk. Securing this deduction could result in 26,000 new jobs annually and a GDP increase of up to $2.9 billion by 2035. The urgency is growing as Congress considers the fate of this crucial tax relief for small businesses.

Arizona’s Small Businesses at Risk: A Look at the 20% Small Business Tax Deduction

In sunny Arizona, the heartbeat of the economy is its small businesses. With over 678,000 small businesses calling the state home, there’s great concern regarding a recent report from the National Federation of Independent Business (NFIB). Released on April 15, 2025, this report warns about potential economic threats if the 20% Small Business Tax Deduction is not made permanent.

What’s at Stake for Small Businesses?

The NFIB highlights that without this crucial tax deduction being extended, Arizona could see its small businesses facing tax rates as high as 42.1%. This would create a stark contrast when compared to the C-Corp tax rate, which remains at a more manageable 25.9%. This disparity could place Arizona’s small businesses at a significant disadvantage and may lead to severe financial strain.

The report warns that the expiration of this deduction could result in an economic slow-down, tightening the financial comfort of local businesses even further. Indeed, Arizona’s economy is heavily tied to small business performance; they account for a whopping 99.5% of the state’s businesses. Therefore, losing the deduction would mean a double whammy: hitting jobs and economic growth hard.

Job Growth Prospects in Jeopardy

On a more positive note, if the 20% Small Business Tax Deduction is secured permanently, it is projected to add approximately 26,000 new jobs annually over the next decade in Arizona. The potential increase in jobs would significantly bolster households, allowing more families to thrive in the thriving Arizona economy.

Moreover, retaining this deduction could see the state’s GDP increase by about $1.41 billion in the first decade. By the time we reach 2035, this figure could soar to nearly $2.9 billion per year. That kind of boost is not only exciting but essential for ensuring that Arizona continues on its path of growth and stability.

How Will Congress Respond?

As we await the crucial decision from Congress, it’s important to recognize that nine out of ten small businesses nationwide could face increased taxes if action is not taken this year. This sense of urgency cannot be understated. The NFIB report positions the fight for the deduction as a rallying point for small businesses across the nation, emphasizing how integral these businesses are to local and national economies.

In the backdrop, existing economic turmoil—like rising inflation and a tightening labor market—compounds the challenges small business owners are facing. Many are grappling with high operational costs that hinder their ability to hire and retain staff, making every little bit of help more valuable.

The Tax Landscape in Arizona

Compounding these issues is Arizona’s recent shift from a two-bracket income tax system to a flat 2.5% rate introduced in 2023. While this change has garnered a fair share of supporters, there are critics who warn that it could dramatically reduce state revenues. This may eventually impact funding for public services and infrastructure investments, further complicating the economic landscape.

As it stands, the NFIB’s findings and their emphasis on the importance of keeping a competitive small business tax rate may be pivotal in lobbying efforts. These efforts aim to ensure the extension of the 20% Small Business Tax Deduction beyond 2025. The stakes are high in this game that could greatly determine the future of Arizona’s small businesses and, by extension, the state’s overall economic health.

As the situation unfolds, it will be critical to pay attention to legislative actions and remain hopeful for positive changes that will lead our beloved Arizona toward continued prosperity.